Does the Federal Reserve need to keep cutting its interest rates for the United States to continue to grow?
Many economists and investors believe that a precondition for continued growth in the United States is that the Federal Reserve continue to cut its interest rates sharply. Is this view right? The interest rates at which US companies borrow are now significantly lower than nominal growth or potential growth when it comes to Investment Grade companies, although not High Yield companies. However, US corporate profitability is high; Interest rates on household mortgage loans are high relative to per capita wage growth; Would equity valuation suffer if long-term interest rates rose in the event that financial markets revised upwards their expectations for short-term interest rates? Similarly, if long-term inter est rates rose due to a change of short-term interest rate expectations, would the United States’ fiscal solvency be in jeopardy? T he dollar’s reserve currency role allows the United States to finance a sizeable fiscal deficit. Altogether, if the Federal Reserve did not cut its interest rates, there would probably be problems in the United States for High Yield companies and share prices.